Macroprudential policy in retail lending: Concept and results – a case study of the Bank of Russia

Abstract

Macroprudential regulation of the banking system is a significant instrument for ensuring the financial stability of the state. Unsecured consumer lending is growing at a steadily high rate (in August-October 2022, the average monthly debt growth was 0.9%), and it remains a priority segment for banks because of its high margins. The share of unsecured consumer loans provided to borrowers with debt burden indicator (DBI) of more than 80% amounted to more than 32% in the third quarter of 2022 (28% in the second quarter of 2022). The share of consumer loans for a term of more than 5 years remains at a high level (15% in July-September 2022). The share of MFO loans issued to borrowers with a DBI of more than 80% was 41% in the second quarter of 2022 (38% in the first quarter of 2022). A further increase in the citizens’ debt burden in the context of the economy restructuring may create additional macroeconomic risks. Problems of citizens with servicing loans and borrowings can lead to a reduction in demand in the economy, and losses of banks as a result of writing off “bad” loans can lead to a decrease in their ability to lend to the economy. To limit the risks associated with an increase in the citizens’ debt burden, since the first quarter of 2023, the Bank of Russia has established direct quantitative restrictions on the issuance of certain types of credits (loans) and the application of increased buffers to risk coefficients if creditors exceed established limits. This article discusses the main approaches to implementation of the macroprudential policy of the Central Bank of the Russian Federation, its goals and instruments, and peculiarities of application in the current conditions.